When To Make A Lump-Sum Investment
The one-time investment has to be manageable and should not influence the overall cost by a significant margin.
A systematic investment plan involves investing a regular amount of money every month; it is the best way to ensure that there is discipline in investing. It ensures that a regular sum is invested through the highs and lows of the equity market, and this leads to an averaging out of the cost for the investor.
There are, however, some situations when not using a SIP is also acceptable, but this does not mean that you abandon the SIP process. These are just a few examples of when you can also invest a lump sum without it disrupting your planning process.
Investing In Debt
When it comes to investing in debt instruments, the longer the period of investment, the higher the earnings.
The goal for the investor should be to ensure that they are investing the available funds quickly so that they can start earning interest quickly. The other factor is that there is not much volatility in debt, and for instruments that are not traded in the secondary market, it is virtually nil. This is why investing lump sum amounts as soon as possible is a good way to ensure that the allotment to the debt part of the portfolio is complete.
If there is already a larger amount available to the investor, there is no point in making a regular investment flow out of it.
Low Additional Amount
There are times when the investor gets a small amount as part of some extra earnings. This could be an extra figure either due to some bonus amount or some other payment that has come in from the maturity of some prior investment.
In both of these cases, there is an amount present with the individual that needs to be invested. For example, if the additional amount is just Rs 10,000 or Rs 15,000, then breaking it into a regular SIP might also not serve many purposes, as this would make the amount even smaller.
In such a case, if this amount is invested all at once, the balance will not be disturbed.
A Small Percentage Of Total Investment
The total investment of the investor is an important figure because this will also determine the kind of investment route that can be adopted for one-off investments.
If the total amount of the investor's portfolio is large and the investor is investing a small amount as additional investment, it makes no difference to try to spread this out because the impact on the overall portfolio will be very small. For example, if the portfolio is worth Rs 50 lakh and the additional investment is worth Rs 25,000, the one-time investment is not a significant percentage of the portfolio, making this a viable lump sum investment.
Already Invests Via SIPs
It is very important that the investor has some regular investments that are going on. It should not be that every amount that comes in is considered a one-time investment and then invested randomly, because this can make the situation even worse.
If there are regular investments going on through the SIP process and the investor is then making a one-time investment due to the availability of extra funds, then this is acceptable. This is a situation where the overall balance of the portfolio will not be disturbed. The bottom line is that the impact of the one-time investment has to be manageable and should not influence the overall cost by a significant margin.
Arnav Pandya is Founder - Moneyeduschool